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National Conference of State Legislatures Calls for Major Reform of U.S. Trade Pact Model as Battle Looms Over Renegotiation of Bush’s Korea FTA

Bipartisan State Legislator Group Passes Resolution Today at Annual Meeting

LOUISVILLE, Ky. – The National Conference of State Legislatures’ (NCSL) approval today of a resolution calling on the Obama administration to make significant reforms to the past U.S. trade agreement model is yet another indication of the nationwide, bipartisan demand for the administration to implement the president’s campaign commitments to trade reform, Public Citizen said.

The NCSL policy, “Free Trade and Federalism,” sets forth what the leading state legislator organization deems an acceptable trade policy. The U.S.-Korea Free Trade Agreement (Korea FTA), signed by President George W. Bush in 2007, does not meet the NCSL’s standards. The administration said it would work to “fix” Bush’s Korea FTA before bringing it to Congress, but to date has committed only to addressing commercial issues related to more market access for U.S. autos and beef in Korea.

“State legislators want President Obama, a former state legislator himself, to address their serious concerns with the Bush trade agreements’ extreme foreign investor rights and service sector deregulation requirements,” said Sarah Edelman, coordinator of the state and local program at Public Citizen’s Global Trade Watch. “This resolution reaffirms that NCSL expects Obama to deliver on his campaign commitments to create a new American trade agreement model that works for more people and respects the tenets of our democracy, such as separation of powers and checks and balances.”

The Free Trade and Federalism policy articulates some of the trade policy changes needed before the NCSL and state legislators will support a specific trade agreement or presidential trade authority proposal. This includes:

• Ensuring that trade agreements do not provide greater procedural or substantive rights for foreign investors by including an investor-state dispute resolution or including greater substantive property rights than available under U.S. law;
• Requiring that federal trade negotiators obtain the explicit consent of state legislatures – not just governors – before a state can be bound to comply with trade agreement procurement policy constraints;
• Limiting U.S. commitments under trade pact service, investment and procurement rules to a “positive list approach” so that only state sectors and policies explicitly committed will be covered by the agreement’s policy constraints; and
• Improving consultation with state legislators on procurement, services and investment provisions of trade agreements before the onset of negotiations.

The resolution also makes clear that NCSL will support future presidential trade authority only if it incorporates a more inclusive and democratic process for making decisions on trade policy and includes adequate safeguards for state laws in trade agreements.

Bush’s Korea FTA contains the extraordinary invest-state enforcement system that the NCSL opposes, as well as provides substantive investor rights that extend beyond U.S. law. This is especially threatening in the context of a Korea FTA, as there are roughly 80 Korean corporations with approximately 270 establishments now in the United States. These entities would obtain new rights to demand taxpayer compensation through challenges of U.S. state and federal laws in foreign tribunals were the Korea FTA passed with its current text.

In 2007, NCSL sent a letter to then-U.S. Trade Representative Susan Schwab noting that this private investor enforcement system is not appropriate for an agreement between two developed countries with well-established rule of law and sound domestic court systems. The ostensible purpose of the mechanism is to provide U.S. investors a stable investment environment and the ability to adjudicate problems with foreign investments in countries that do not provide reliable domestic judicial systems.

The NCSL letter said: “Since South Korea is a sophisticated and developed trading partner, NCSL does not believe that an investor-state chapter should be negotiated into the U.S.-Korea FTA for fear that similar abuses may arise. Until we have further refined the FTA investor-state language to protect state sovereignty and federalism, we fear that it may be more dangerous to include revised yet still flawed investor-state language in the U.S.-Korea FTA than to forego the provision all together.” The letter is available at http://www.strtrade.com/advisories/wti/2007/march/29/ncsl_investor-state.pdf.

“With this policy, state legislators have laid out specific instructions about the ways in which trade agreements and the negotiation process must change in order to give state lawmakers the necessary policy space to address the economic, climate and health care crises challenging their states,” Edelman said.

Today’s international trade agreements delve deeply into matters of state law. Pacts like the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) General Agreement on Trade in Services (GATS) contain numerous policy obligations and constraints to which U.S. federal, state and local governments are bound to conform their domestic policies. Effectively, today’s trade agreements involve a form of international pre-emption that can undermine state policies on procurement, investment and services regulation.

In recent years, states have spent enormous sums of taxpayer dollars defending public health, environmental and land-use policies against trade pact foreign-investor challenges under NAFTA. Further, trade pact limits on procurement policies could frustrate state officials’ economic development strategies as measures to prevent sending state jobs offshore. “Buy Local” and “Buy America” policies, among others, run afoul of many trade pact rules. Already, five states have passed legislation that requires state legislative approval before the federal government commits the state to restrictive trade pact procurement rules.

Federal lawmakers have echoed state legislators’ calls for a stronger voice in the trade policymaking process. The Trade, Reform, Accountability, Development and Employment (TRADE) Act, with 145 House cosponsors, requires improved consultation with states on sections of trade agreements that could have consequences for state policies like procurement, services and investment provisions. The TRADE Act would require the consent of state officials before the state is committed to comply with these provisions.

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